The Wachovia's Financial Crisis
Abstract
In recent months many corporations have been to make major cutbacks, change the operating polices, and some have been forced to close their doors for good as a result of many financial and economic disasters that occurred in the proceeding years. While news has been made about corporations such as Circuit City and Linen ‘n Things filing for chapter 7 bankruptcy some of the most unexpected financial crisis have come major financial instiutions such as Wachovia. As a result these corporations have been forced to merge, plead for government assistance, ans possibly close their doors for good. IN this paper we’re going to discuss the financial criis that Wachovia experienced in 2008 and some possibilities they may need to look into. …show more content…
Overview Wachovia is a financial institute that provides multiple services including asset and wealth management, corporate investment banking products and services, individual services and products, brokerage, and retail banking. With more than 100,000 employees, branches in 21 states, and more than 40 international offices Wachovia Bank is one of the largest American financial institutions. Wachovia, which is the latin dialect for the Austrian word, Wachau, was founded in 1879 operating under the name of Legacy Wachovia Corporation. The company’s headquarters is based in Winston-Salem, North Carolina and gradually became one of the largest banks within the Southeast of America. It wasn’t until 2001 that Wachovia would become a major player in the financial industry across America. On September 1, 2001 Wachovia was aquirered by First Union Corporation. Both companies found the merger fortuitous as Wachovia had found itself in some financial trouble due to poor profit earnings and poor credit quality and First Union Corporation benefited from operating under the Wachovia name as would behoove their popularity amongst consumers. Unlike some of Wachovia’s previous merger their merger with First Union was extremely successful and helped to launch the corporation has been ranked as number one under customer satisfaction amongst according to a study done by University of Michigan. However, since then the corporation has fallen into additional financial troubles due to the economy. Therefore, in December 31, 2008 Wachovia was no longer an independent corporation as it was purchased by Wells Fargo. The financial plan is to slow phase out the Wachovia name and incorporate it into the Wells Fargo brand by 2011. Company board of directors, management and trusted advisors
Table 1.
Board of Directors
Name Age Gender Title Member Since Background Photo
Lanty L. Smith 1942 Male Chairman 1987 Served as lead independent director of Wachovia Corporation from 2000 - 2008 when he was named chairman and interim executive officer from June 01, 2008 until July 09, 2008. Currently is chairman and chief executive officer of Tippet Capital, a merchant banking firm headquartered in Raleigh, N.C.
John D. Baker, II 1948 Male Committee 2001 Pesident and chief executive officer of Patriot Transportation Holding, Inc., Jacksonville, Florida, a motor carrier, flatbed transportation hauler and real estate management company.
Peter Browning 1941 Male 2001 Lead director of Nucor Corporation, a steel products manufacturing company in Charlotte, N.C. Previously, he was non-executive chairman of Nucor and dean of the McColl Graduate School of Business, Queens University of Charlotte.
John T. Casteen, IOII 1943 Male Committee 2001 John T. Casteen has been president of the University of Virginia, Charlottesville, Virginia, since 1990. He served on the faculty of the University of California-Berkeley until 1975, when he became a dean at UVa. Casteen also has served as Virginia’s education secretary and president of the University of Connecticut.
Jerome Gitt 1943 Male 2006 Jerry Gitt is a retired securities analyst from Merrill Lynch & Company, where he served as first vice president of Equity Research, covering thrifts, banks and financial-related companies. He was a board member of Golden West Financial Corporation from 2005 until the completion of the merger with Wachovia.
William Goodwin, JR. 1940 Male 1993 William H. Goodwin is chairman and president of CCA Industries, Inc., a diversified holding company in Richmond, Va. Also, chairman, chief executive officer and chief operating officer of The Riverstone Group, LLC, Richmond, Va., a diversified holding company. Before forming his own business in 1971, Mr. Goodwin worked for IBM.
Maryellen Herringer 1943 Female 2006 Maryellen C. Herringer is an attorney-at-law and non-executive chair of ABM Industries Incorporated, San Francisco, California, a facilities service company. Also, retired executive vice president, general counsel and secretary of APL Limited, an intermodal shipping and rail transportation company based in Oakland, Calif..
Robert Ingram 1942 Male 2001 Vice chairman-Pharmaceuticals of GlaxoSmithKline, a pharmaceutical research and development company in Research Triangle Park, N.C. He is chairman of the board, OSI Pharmaceuticals Inc., Melville, New York, a biotechnology company, and lead director, Valeant Pharmaceuticals International, Aliso Viejo, California, a specialty pharmaceutical company focused on neurology, dermatology and infectious disease
Donald James 1949 Male 2004 Donald M. James is the chairman and chief executive officer of Vulcan Materials Company, Birmingham, Alabama, a construction materials company.
Mackey McDonald 1946 Male 1997 Mackey J. McDonald is chairman of VF Corporation, an apparel manufacturer in Greensboro, N.C
Joseph Neubauer 1941 Male 1996 Joseph Neubauer is chairman and chief executive officer of ARAMARK Holdings Corporation, a service management company in Philadelphia, Pa.
Timothy Proctor 1949 Male 2006 Timothy D. Proctor is the general counsel of Diageo plc, a London-based premium spirits, wine and beer company. He previously worked for Glaxo Wellcome, where he held various roles, including director of Worldwide Human Resources, and senior vice president of human resources, general counsel and secretary.
Ernest Rady 1937 Male 2006 Ernest S. Rady is principal shareholder, manager and consultant to a group of companies engaged in real estate management and development, property and casualty insurance, and investment management through American Assets, Inc. (president and founder) and Insurance Company of the West (chairman), Irvine, California.
Van Richey 1989 Male 2004 Van L. Richey is the president and chief executive officer of American Cast Iron Pipe Company, Birmingham, Alabama, a manufacturer of products for the waterworks, capital goods and energy industries. He has served in this position since 1989.
Ruth Shaw 1948 Female 1990 Ruth G. Shaw, retired, continues as executive advisor to the chairman and chief executive officer of Duke Energy Corporation, one of the largest electric power companies in the United States with headquarters in Charlotte, N.C..
Dona Young 1954 Female 2001 Dona Davis Young is chairman, chief executive officer and president of The Phoenix Companies, Inc., in Hartford, Connecticut, a provider of wealth management products and services to individuals and institutions, and its subsidiary, Phoenix Life Insurance Company.
Information retrieved on February 9, 2009 from http://www.wachovia.com/inside/page/0,,132_155,00.html
Table 2.
Management and Trusted Advisors
Name Born Gender Employee Other Title Background and Education Photo
Robert K. Steel 1951 Male President and CEO Under Secretary, Domestic Finance, U.S. Department of the Treasury (2006 - 2008) Senior Fellow, John F. Kennedy School of Government, Harvard University (2004 - 2006) Goldman Sachs Group, Inc. (1976 - 2004)
Education: Bachelor's in history and political science, Duke University Master's in business administration, University of Chicago
David Zwiener 1954 Male Chief Financial Officer Sr. Executive Vice President Managing Director and co-head of the Financial Institutions Group, The Carlyle Group The Hartford Financial Services Group (1995-2007)
Education:
B.A., Duke University M.B.A. in Finance & Marketing, Northwestern University No Photo available
David Carroll Not available Male Head of Capital Management Group Senior Executive Vice President Head of Corporate Services and Merger Integration Chief eCommerce and Technology Officer President, First Union-Florida, General Banking Group President, First Union-Georgia, General Banking Group Vice Chairman and General Banking Group Executive, First Union-Virginia.
Education: B.S. in business administration from University of North Carolina-Chapel Hill
Ranjana Clark Not available Female Chief Marketing Officer Sr. Executive Vice President
Steve Cummings Male Head, Corporate and Investment Banking Sr. Executive Vice President Co-head of Capital Markets Chairman and CEO of Bowles Hollowell Conner
Education:B.A. in Administrative Science, Colby College M.B.A., Columbia College
Reggie Davis Male Southeast Group Executive Wholesale Banking Executive Vice President Northern Banking Group Executive CEO of the Atlantic region President, Georgia and Georgia West regions Senior Vice President and Vice President, Commercial Real Estate Manager, Real Estate Loan Administration Real Estate account officer Corporate Real Estate analyst
Education: B.A. in insurance and actuarial science,
Jerry Enos Male Head of Operations and Technology Group Sr. Executive Vice President Head of Operations Division Head of Enterprise Support Services Regional leader of the Retail Banking, Sales and Service Departments, Greensboro and Charlotte, N.C.
Education: B.A. in Economics, Guilford College
Ben Jenkins Male President of the General Bank Vice Chairman President, First Union, Florida President, First Union, Virginia, Maryland, Washington, D.C. President, First Union, Georgia President, First Union, South Carolina City executive, Raleigh, N.C.
Education: B.S. in textile chemistry, North Carolina State University M.B.A., University of Alabama
David Julian Male Chief Auditor Executive Vice President Chief Operating Officer for Finance Corporate Controller Director of Corporate Accounting and Reporting
Education: Bachelor of Science, Northeastern University
Stan Kelly Male President of Wealth Management Senior Executive Vice President Head of Consumer Financial Services Regional Executive, Raleigh, N.C. Forsyth County Executive, Winston-Salem, N.C.
Education: B.A. in Business, North Carolina State University
Danny Ludeman Male President and CEO Executive Vice President Financial advisor, Board Member and Executive Committee Member - Wheat First Securities
Education: Virginia Tech; B.A. in Economics from Virginia Commonwealth University; M.B.A. from the College of William and Mary
Shannon McFayden Female Head of Human Resources and Corporate Relations Sr. Executive Vice President Director of Corporate and Community Affairs Director of Community Affairs Director of Human Resources Client Services, including relationship teams, compensation, diversity, training and organization development
Education: B.A. in Psychology, Davidson College
Kenneth Phelan Male Chief Ris Officer Executive Vice President Head of Risk Management Services, J.P. Morgan Chase Head of Risk Strategy Development and head of Market Risk, Bank One Head of Global Loan Portfolio Risk Management and Hedging, UBS Head of Capital Markets, Asset Backed Securities Group, Credit Suisse First Boston
Education: B.A. in Business Administration, Old Dominion University M.S. in Economics, Trinity University, Dublin, Ireland Juris Doctor, Villanova University School of Law
Jane Sherburne Female General Counsel Sr Executive Vice President General Counsel, Global Consumer Group, Citigroup Senior Deputy General Counsel, Citigroup Special Counsel to the President, The White House (Clinton Administration)
Education: B.A., University of Minnesota M.S.W., University of Minnesota J.D., Georgetown University Law Center No Photo available
Cece Stewart Sutton Female Head of Retail and Small Business Banking Executive Vice President Head of General Bank operations, South Carolina Area banking executive, Rock Hill, S.C. Training Director, Consumer Bank Manager, Consumer Bank, Greenville, S.C. Sales manager, Consumer Credit, Charlotte, N.C. Branch manager, Raleigh and Cary, N.C.
Education: B.A. in psychology, University of South Carolina; M.B.A., Winthrop University
Ben Williams Male Head of Global Capital Markets and Investment Banking Managing Director Head of Global Markets; Head of Fixed Income Division; Head of Real Estate-Financial Services Group Head of Wachovia's Real Estate Capital Markets group Various positions in Human Resources, Corporate Banking, Investment Banking and Commercial Real Estate
Education: B.A. in Economics, Davidson College; Masters in Science, Massachusetts Institute of Technology
Information retrieved on February 9, 2009 from http://www.wachovia.com/inside/page/0,,132_155,00.html Corporate governance and leadership style
Wachovia’s corporate governance consists of the many different aspects of their corporation.
Their corporate governance is comprised of relationship managers, business leaders, and their real estate and procurement staff. Their efforts are brought together to implement a service to our community including recycling and carpooling, Wachovia refers to this program as their Environmental Stewardship. The leadership of the stewardship is very hierarchical. Starting from the top of the firm with executive oversight by the operating committee; the operating committee is responsible for drafting and maintaining the environmental strategy. Then it gets passed down the environment Stewardship Working Group. This group includes the senior leaders from different service areas and offices within Wachovia. Their primary duty is to spearhead both the development and implementation of the environmental goals and initiatives. This group also meets regularly to discuss their strategies and game plans. Then the ball is passed on to the environmental affairs. The environmental affairs group consists of two people, Patrick Mumford and Daria Milburn. It is the duty of the environmental affairs group to manage the environmental strategy implemented by the environmental stewardships working group on a day-to-day basis.
Chronology timeline One of the major cause for scare to the financial crisis was the rapid manner of when it all occurred. It seemed that almost over night many of the financial giants were in grave danger of closing their doors fro good. Wachovia, the nation’s fourth largest financial servicing bank was no exception:
• June 2007 – Two Bear Sterns are required to dump assets due to major losses. This impacts many of the larger financial firms including JPMorgan, Chase, Merill Lynch, and
Citigroup
• October 15, 2007 – Citigroup announces third quarter losses of $6.5 billion
• January 15, 2008 – Citigroup announces fourth quarter loses of $18.1 billion
• April 4, 2008 – Wachovia reports it’s first quarter loss in seven years
• June 2008 – Ken Thompson, Wachovia CEO, is dismissed from his position
• July 2008 – Robert K. Steel joins Wachovia as CEO
• September 16, 2008 – AIG Corp, bails out Federal Reserve and enters into discussion of merger with Morgan Stanley and Wachovia
• September 29, 2008 Wachovia announces it’s decision to sell to Citigroup for $1/share
• October 3, 2008 – Wells Fargo announces its plan to purchase Wachovia for $7/share
• October 5, 2008 – Battle ensues between Citigroup and Wells Fargo over merger with Wachovia
• October 6, 2008 Citigroup and Wells Fargo’s battle comes to a legal standstill when Citigroup files a $60 billion lawsuit against both Wachovia and Wells Fargo for the interference of their takeover
• October 16, 2008 – Wachovia delays merger with Japanese brokerage units because of financial loss.
• October 22, 2008 – Wachovia reports $23.9 billion loss
• October 11, 2008 – The Fed approves Wells Fargo’s purchase of Wachovia
• November 11, 2008 Wells Fargo sells $11 billion in stock for Wachovia merger
• December 31, 2008 – The merger between Wells Fargo and Wachovia is finalized
Information retrieved on February 8, 2009 from http://edition.cnn.com/2008/BUSINESS/09/30/us.bailout.timeline/index.html
Legal Analysis As with any corporation Wachovia has found themselves to be involved in legal disputes in the past, present, and will surely in the future. It’s common for corporations to be involved in some type of legal dispute multiple times in a year. Many of these disputes often in up being resolved outside of court. Patricia McCoy, a professor of law & finance at the University of Conneticut stated that, “98% to 99% of civil suits are settled out of court”
While settlemtns are often the cause these suits are often extremely timely, expensive and be very detremntal to a company’s reputation. Legal ramifications can fall under three different categories; civil, criminal, and administrative. There are extreme differences with each of these and often times a corporation will find that they may be in court against civil or adminisrtaive ramifications; criminal charges be brought against a court are often rare as many corporations have strict legal teams to ensure that they are operating within the laws. The simpliest way to charcteize the different legal theories is to remember the civil liability is common law. A civil suit occurs when an individual sues the corporation hoping to gain a monetary value for be wronged in some way. The outcome of these suits are often a hefty cash settlement. Civil suits can be tried in front of a jury, in that case the jury must be convienced by 51% that the defendant is guilty also know as proof of preponderance. While Criminal suits are when the corporation is being charged for breaking a statute and will often result in jail time. In order for someone to be convicted in a crimimal suit the jury must be convinced of the defendance guily by 99% beyond a reasonable doubt. The Adminisrtaive liability involves government officials that have set rules and order to monetory and policy organizations. These groups include the SEC, FDA, & EEOC just to name a few. A corporation may find themselves in trouble when they have broken some clearly defined rule or law. Administrative trials may result in a license being revoked or some sort of suspension. Now that we have a clear understanding of the civil, criminal, and adminisrtaive laws let’s discuss how these laws pertain to Wachovia.
Civil Liability
Currently Wachovia is facing several civil suites but the perhaps the most popular suit is the RICO charges that they were facing. This is a perfect example of a suit that falls under both the criminal and civil categories. In 2007 Wachovia found itself in trouble when a Pennsylvania telemarketing firm preyed on several elderly people and gradually cleaned out their accounts by writing numerous fraudulent checks then processing the checks through an account at Wachovia. As a result Wachovia was sued by Langer & Grogan for acts of negligence. Langer & Grogan filed a class action suit against Wachovia for knowing that this was going on and not doing anything about it. Langer & Grogan also claimed that Wachovia had a part in it; thus filing a fraudulent suit against them for their participation in the RICO case. The following press release further illustrates the civil suit: PHILADELPHIA, April 12 /PRNewswire/ -- Langer & Grogan, P.C. announced today that it had filed a RICO class action alleging that Wachovia Bank, N.A. had conspired with a payment processor, Payment Processing Center ("PPC"), in a scheme that facilitated fraudulent telemarketing directed primarily at the elderly involving tens of millions of dollars. The suit was filed in Federal Court in Philadelphia. The complaint describes the use of "demand drafts" by deceptive telemarketers based on banking information they obtained over the phone from victims. The complaint alleges that PPC prepared the demand drafts and deposited them in a series of accounts opened at Wachovia. The complaint alleges that Wachovia, aware that demand drafts were commonly used by deceptive telemarketers, continued to open and to maintain the accounts, even though (1) the accounts had a return rate of approximately 60% of them total sums of the drafts deposited, and (2) even after a second Philadelphia bank had warned Wachovia that it was being flooded by unauthorized bank drafts originated by PPC and had solicited Wachovia's assistance "in trying to shut down the scam." The complaint states that, "Wachovia responded that 'overzealous' telemarketers were responsible for the problems with the PPC bank drafts, but nonetheless continued to accept such drafts from PPC." The complaint also alleges that other banks complained to Wachovia of PPC's activities. The complaint alleges that Wachovia had a special agreement with PPC which granted Wachovia expanded refund and charge back rights. The complaint alleges that Wachovia knew that the banking services it provided were an essential element in PPC's scheme.
Information retrieved on February 8, 2009 from http://www.prnewswire.com/cgi-bin/stories.pl?ACCT=109&STORY=/www/story/04-12-2007/0004564569&EDATE=
Further investigations later found that Wachovia employees did in fact know about these fraudulent transactions but continued to process the checks largely because of the fines that are charged on individuals when processing fraudulent claims would be a source of revenue for Wachovia. Some internal emails proved their involvement in the situation. One executive’s response when finding out these fraudulent charges was, “Yikes!!!!...DOUBLE YIKES!!! There is more, but nothing more that I want to put into a note. Information retrieved on February 8, 2009 from http://www.nakedcapitalism.com/2008/02/evidence-wachovia-knew-of-and-profited.html
A class action lawsuit was filed against Wachovia Bank for their participation and lack of immediate response to defuse these transactions. This case ended in a settlement, on October 12, 2008 Wachovia agreed to pay $200 million for turning a blind-eye and ignoring said transactions.
Information retrieved on February 8, 2008 from http://www.uslaw.com/library/Colorado/Wachovia_Telemarketing_Suit_Settled.php?item=266138 More recently Wachovia is currently facing a civil suit against Citigroup. In October 2008 Citigroup filed a $60 billion suit against Wachovia, Wells Fargo in proxy claiming that the December 31, 2008 merger completely underhanded their deal to acquire Wachovia. Citi’s allegations claim that Wells Fargo’s acquisition of Wachovia was a direct violation of the contract Wachovia previously had with Citi. Many professionals and experts in this area believe that Citi’s lawsuit of $60 billion is extremely unrealistic and Citi will most likely settle outside of court for far less than the $60, it’s doubtful they’ll even receive $1 billon. Or their case will be thrown out of court and Citi will end up with nothing. Either way if Citi loses this case it’s possible that their reputation will be tarnished and most likely stockholders will be displeased with the monetary costs for the law suit given Citi’s current financial situation they may find that this suit pull them out or dig them deeper into debt.
Information retrieved on February 8, 2008 from http://www.iddmagazine.com/news/188916-1.html?CMP=OTC-RSS
Given the information provided Wachovia could possibly file a countersuit on Citigroup if the judge decides to through the case out; it doesn’t seem a that Citi has much of a case and it’s possible they are suing to come out better than they would’ve been had the deal actually gone through. Their ability to actual acquire Wachovia is currently in question. Therefore, Wachovia could possibly file a civil suit against Wachovia for defaming their name and possibly their legal costs for dealing with the original suit. If Wachovia is able to win their suit then they could possibly come out on top but there’s no question as to when or if they’ll receive their money given Citi’s current financial situation.
Criminal Liability The RICO case discussed earlier is also a criminal case that Wachovia was facing. Wachovia is still currently facing criminal charges for this fraudulent activity which lead to more then $100 million in theft. Further investigation showed that more than 60% of the victims notified Wachovia of the misuse of their transactions and Wachovia still failed to take immediate actions and further investigate. The proof of the executives aiding and abetting in this criminal activity has done nothing but hurt any defense Wachovia may have had.
Information retrieved on February 8, 2009 from http://www.rumormillnews.com/cgi-bin/archive.cgi?noframes;read=106649
A more recenty case that Wachovia is currently involved in is on the plaintiff end. A Wachovia National Bank in Charlotte, North Carolina was robbed by a lone male. On September 4, 2008 an individual entered the bank and handed the teller a note that threatened the teller and also demanded cash. The teller cooperated with the robber and released an undisclosed amount of cash to the burglarer. He then exited the bank with harming anyone. Since then the individual has been captured and Wachovia is can file criminal charges against this individual. These charges can both burglary and assault. Also if Wachovia fails to do so it’s possible that the FBI can interfere and charge the individual with federal violations. Information retrieved on February 8, 2009 from http://www.crimeincharlotte.com/2008/09/wachovia-bank-robbed-on-south-blvd.html
Wachovia could possibly be involved in future criminal suits if another bank robbery were to occur. The security guard on duty for this robbery may now be a little more alert or even edgy about suspicious characters entering the building. If some time passes by and another individual that makes the security feel a little uncomfortable enters the building only this time he shoots first without asking questions but it comes to find out that this individual did not have the intent of robbing the bank than both the security guard and Wachovia could be facing some serious criminal charges. These charges could range from agrigated assault to attempted murder or murder if the individual does in fact die as a result.
Administrative Liability
In the situation regarding Wachovia’s involvement in the fraudulent transactions they may find themselves in administrative trouble with the Federal Deposit Insurance Corporation (FDIC). The FDIC is responsible for ensuring ethical and safe banking practices. It’s possible that Wachovia may be forced to restructure their current team and face multiple fines for failing to meet the assumed responsiblilites when they became aware of the unethical pratices. The federal government agencies recently got involved with the merger between Wachovia and Wells Fargo. As the there was dispute between Citigroup and Wells Fargo over which organization would be better equipped to acquire the Wachovia organization. The corporations went back and forth over weeks on this and it wasn’t until the federal government intervened on October 11, 2008, giving Wells Fargo the go ahead that the merger finally came to an end. While Citigroup is still actively and aggressively maintaing their civil group against both corporations. The feds have already approved the administrative aspects for Wells Fargo.
Another federal administration is the Security Exchange Commission (SEC). The SEC sets the rules and guidelines to maintain a fair order of practice within corporations. Due to recent economic crisis the SEC has been working even more diligently to protect investors and markets from unethical practices on behalf of the financial institutions. The SEC’s primary goal as of late has been to restore investors confidence in the financial realm by closely policing and monitoring some of the biggest players. If Wachovia could possibly be facing administrative ramifications from the SEC as well as the FDIC.
Information retrieved on February 8, 2009 from http://www.sec.gov/about/whatwedo.shtml
Ethical Analysis As with legal ramifications the importance of a corporation upholding their ethical resposiblities can be just as, if not more important. It is not uncommon for a company that chooses not to run an ethical practice will find itself on the fence with illegal practices, often resulting in criminal suits and possibly criminal suits as well.
Main Ethical Issues In 2008 the economy seemed to of come to a extreme means almost over night. Many major players in the financial industry, such as Fannie Mae, Morgan Stanley, and Wachovia, found themselves in desperate need of financial assistance. As a result, the American citizens began to panic. Pulling their money from stocks, bank accounts, and making incredibly drastic decisions overnight. Many of these decisions were pulling the economy under and proving to be less helpful so the government decided to intervene to help subdued some of the panic. This is where Wachovia’s ethical delimas began.
Wachovia is currently facing two major ethical issues both revolving around bailouts. While Wachoiva it’s self is looking for bailout and was in talks with several other insititions to merge before siding with Wells Fargo. Also despite Wachovia’s claim of a $23.9 billion loss and the report of their first quarterly loss in April 2008; they were able to provide an $8 million bailout to the NRCC - GOP. This bailout came after Wachovia has been denying credit to many of its customers, cutting back on loans, and also freezing assets of other customers. Many are claiming favoritism if Wachovia is able to pay $8 million to the GOP but unable to give a credit loan of $25,000 to John Doe. The moral delimia arises asking why does the GOP and/or Wachovia deserve a multimillion dollar bailout over the average American consumer and the Small Business Owner? Many are claiming that policital and favoritism are huge factors in Wachovia’s decision to bailout the NRCC
Information retreved on February 8, 2009 from http://southernstudies.org/2008/10/investigation-how-did-republicans-get-8.html
Ethical Models
The ethical model helps to illustrate the common types of models used when running an organization and can even be used on a case by case basises. Often times corporations will operate ion a certain manner and that manner will fall under a certain model. It’s not common that corporations will decided on the model to operate under as sceanriors may not always be that simple. There are three ethical models to describe the behavior or choices made under certain decisions. The utilitarian principle, which is also known as the cost/benefit model is best describe by appealing to the majority. Therefore, the greatest benefit to the largest amount of people is the best practice under this model. This model can be positive for those that fall under majority but for the minority it can be greatly unfortunate. As this model does not evaluate the lost to the minority in each scenario in relation to the gain for the majority, it just measures what the greastest outcome to the largest amount of people may be and goes by it. One could argue that bailout for Wachovia would be working under utlitariansim by giving them the bailout. It seems that bailing out Wachovia could benefit not only the corporation but the economy as well. If Wachovia did not receive the bailout then its consumers would have to go else where for their financial needs. Most likely losing the fourth largest financial servicing company in the United States would only make it harder to get a loan and cause the unemployment rate to rise even higher. Another ethical model is the rights orientation model. This model was developed by Immanuel Kant and is designed primarily by fairness. Therefore, Kant’s theory was that everyone has a right to be treated equally and not one human being should be able to violated another’s right to equally. Therefore, if a right is in direct violation of another persons basic rights then another outcome should be found. This model is perhaps the largest agruement against providing Wachovia and other financial insittions with the bailout. Is it Wachovia’s right to receive millions in bailout money over the taxpayers right to vote on how the taxpayers money should be spent? Many argue that the taxpayer has the right to receiving money individually to themselves over a major corporation being ran by wealthy executives who aren’t accustomed to commercial flights. The third fand final model is egoism. Egoism is arguably the most popular model amongst corporate executives. This theory is based on the fact that the most important player in the decision making process is the decision maker. Therefore, the finally outcome should be weighed on how it is most beneifical for the decision maker and completely negligent to consider anyone else’s rights or the impact it may cause on either the majority or minority. This model can be extremely dangerious because it’s very subjective and the outcome can and will most likely change on a person to person basis. It’s possible that many feel as thought Wachovia is acting on the egoism model. Deciding that the best outcome for Wachovia is to receive the congressional bailout; without stronglgy considering how all of the economy may benefit if the executives used their own money to bail temselves out and would’ve allowed the congressional bailout to go public or governmental organization more in need of funds.
Kohlberg Analysis Lawrence Kohlberg is a psychologist that dedicated much of his career disproving the theory that we are maintain our adolescent views on morality. Kohlberg’s theory was that as we grow in age or depth in problem solving matures and grows with us much like our physical and mental attributes. Kohlberg found that this process is broken up into three main stages. Preconventional Stage; the preconventional stages the are the most fundamental states. They are broken up into two stages, Punishment and obedience orientation and instrumental and relative orientation. In this stage Kohlberg discusses how children are able to decipher the difference between right and wrong and good and bad. Which is most often taught by self how it pertains to ones self. If you do something bad or wrong then you’ll receive a punishment and adversely right or good behavior is rewarded. The next stage is the conventional stage. In the conventional stage the two sub stages are interpersonal concordance orientation and law and order. This stage illustrates the importance of social loyalty and behavior. At this stage we mature the fundamental knowledge of right and wrong to what’s acceptable to our social group. One extreme example may be that it’s wrong to steal but if a boy is stealing bread to feed his starving family in his conventional stage agrees with that mentality of thinking. At this stage we are capable of taking a more in-depth of right and wrong not always being so black and right however we’re incapable of understanding other view points that aren’t relating to our own. Kohlberg’s final stage is postconventional, autonomous, or principled stages. This stage is the most mature and most advanced level. The person is now able to understand the difference between right and wrong and apply that theory to how it will apply to all individuals being affecting whether it pars with that one individuals point of view or not. This stage is also broken into two different stages as well; social contract orientation and universl ethical principles orientation. It is Kohlberg’s theory that once out of adolosence most mature adults are at the third and final stage. Being able to problem solve and consider all parties involved when facing an ethical dilemma otherwise that the party is capable of working under the rights orientation model. While the decision process may be there, the final outcome may not always reflect that.
Critical Analysis
How the Situation Could Have Been Avoided (From a Management Perspective) What You Learned from the Research Paper and How It Would Apply To Your Personal Leadership Style Research Wachovia has really taught me a lot about mainting scruples and morals when working a leadership position. Some of Wachovia’s major legal and ethical dilimenas could’ve been avoided had they decided not to focus on the bottom line or the monetary amount that they may have received for acting unethically. Also it seems that these unethical acts costs them a lot more than they brought in. One example is the $200 million that they lost to the civil suit alone in the RICO case. When a corporation grows to the size the Wachovia has become it seems almost impossible not to have a heiracial leadership within the firm; however, there must be actions holding people accountable at each structure within the firm. Therefore, people will focus on covering themselves and ensuring that every transaction they’re involve in is covered as well. I feel that people must be able to take ownership for the task that they’re assigned to and ensure that they are fulfilling both the legal and ethical roles in their position the say way the would had it been their very first day at work.
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Velasquez, Manuel, Business Ethics: Concepts and Cases (6th Edition), Upper Saddle River, New Jersey: Pearson/Prentice Hall (2006) (Cited as “VEL”)
http://www.forbes.com/leadership/governance/
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http://www.unbossed.com/index.php?itemid=1522http://www.iddmagazine.com/news/188916-1.html?CMP=OTC-RSS
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http://southernstudies.org/2008/10/investigation-how-did-republicans-get-8.html
http://www.creditwritedowns.com/credit-crisis-timeline#Timeline
http://edition.cnn.com/2008/BUSINESS/09/30/us.bailout.timeline/index.html
http://www.sec.gov/about/whatwedo.shtml
http://in.news.yahoo.com/137/20080929/371/tbs-citi-to-buy-wachovia-european-banks.html
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http://owl.english.purdue.edu/owl/resource/560/16/
In recent months many corporations have been to make major cutbacks, change the operating polices, and some have been forced to close their doors for good as a result of many financial and economic disasters that occurred in the proceeding years. While news has been made about corporations such as Circuit City and Linen ‘n Things filing for chapter 7 bankruptcy some of the most unexpected financial crisis have come major financial instiutions such as Wachovia. As a result these corporations have been forced to merge, plead for government assistance, ans possibly close their doors for good. IN this paper we’re going to discuss the financial criis that Wachovia experienced in 2008 and some possibilities they may need to look into. …show more content…
Overview Wachovia is a financial institute that provides multiple services including asset and wealth management, corporate investment banking products and services, individual services and products, brokerage, and retail banking. With more than 100,000 employees, branches in 21 states, and more than 40 international offices Wachovia Bank is one of the largest American financial institutions. Wachovia, which is the latin dialect for the Austrian word, Wachau, was founded in 1879 operating under the name of Legacy Wachovia Corporation. The company’s headquarters is based in Winston-Salem, North Carolina and gradually became one of the largest banks within the Southeast of America. It wasn’t until 2001 that Wachovia would become a major player in the financial industry across America. On September 1, 2001 Wachovia was aquirered by First Union Corporation. Both companies found the merger fortuitous as Wachovia had found itself in some financial trouble due to poor profit earnings and poor credit quality and First Union Corporation benefited from operating under the Wachovia name as would behoove their popularity amongst consumers. Unlike some of Wachovia’s previous merger their merger with First Union was extremely successful and helped to launch the corporation has been ranked as number one under customer satisfaction amongst according to a study done by University of Michigan. However, since then the corporation has fallen into additional financial troubles due to the economy. Therefore, in December 31, 2008 Wachovia was no longer an independent corporation as it was purchased by Wells Fargo. The financial plan is to slow phase out the Wachovia name and incorporate it into the Wells Fargo brand by 2011. Company board of directors, management and trusted advisors
Table 1.
Board of Directors
Name Age Gender Title Member Since Background Photo
Lanty L. Smith 1942 Male Chairman 1987 Served as lead independent director of Wachovia Corporation from 2000 - 2008 when he was named chairman and interim executive officer from June 01, 2008 until July 09, 2008. Currently is chairman and chief executive officer of Tippet Capital, a merchant banking firm headquartered in Raleigh, N.C.
John D. Baker, II 1948 Male Committee 2001 Pesident and chief executive officer of Patriot Transportation Holding, Inc., Jacksonville, Florida, a motor carrier, flatbed transportation hauler and real estate management company.
Peter Browning 1941 Male 2001 Lead director of Nucor Corporation, a steel products manufacturing company in Charlotte, N.C. Previously, he was non-executive chairman of Nucor and dean of the McColl Graduate School of Business, Queens University of Charlotte.
John T. Casteen, IOII 1943 Male Committee 2001 John T. Casteen has been president of the University of Virginia, Charlottesville, Virginia, since 1990. He served on the faculty of the University of California-Berkeley until 1975, when he became a dean at UVa. Casteen also has served as Virginia’s education secretary and president of the University of Connecticut.
Jerome Gitt 1943 Male 2006 Jerry Gitt is a retired securities analyst from Merrill Lynch & Company, where he served as first vice president of Equity Research, covering thrifts, banks and financial-related companies. He was a board member of Golden West Financial Corporation from 2005 until the completion of the merger with Wachovia.
William Goodwin, JR. 1940 Male 1993 William H. Goodwin is chairman and president of CCA Industries, Inc., a diversified holding company in Richmond, Va. Also, chairman, chief executive officer and chief operating officer of The Riverstone Group, LLC, Richmond, Va., a diversified holding company. Before forming his own business in 1971, Mr. Goodwin worked for IBM.
Maryellen Herringer 1943 Female 2006 Maryellen C. Herringer is an attorney-at-law and non-executive chair of ABM Industries Incorporated, San Francisco, California, a facilities service company. Also, retired executive vice president, general counsel and secretary of APL Limited, an intermodal shipping and rail transportation company based in Oakland, Calif..
Robert Ingram 1942 Male 2001 Vice chairman-Pharmaceuticals of GlaxoSmithKline, a pharmaceutical research and development company in Research Triangle Park, N.C. He is chairman of the board, OSI Pharmaceuticals Inc., Melville, New York, a biotechnology company, and lead director, Valeant Pharmaceuticals International, Aliso Viejo, California, a specialty pharmaceutical company focused on neurology, dermatology and infectious disease
Donald James 1949 Male 2004 Donald M. James is the chairman and chief executive officer of Vulcan Materials Company, Birmingham, Alabama, a construction materials company.
Mackey McDonald 1946 Male 1997 Mackey J. McDonald is chairman of VF Corporation, an apparel manufacturer in Greensboro, N.C
Joseph Neubauer 1941 Male 1996 Joseph Neubauer is chairman and chief executive officer of ARAMARK Holdings Corporation, a service management company in Philadelphia, Pa.
Timothy Proctor 1949 Male 2006 Timothy D. Proctor is the general counsel of Diageo plc, a London-based premium spirits, wine and beer company. He previously worked for Glaxo Wellcome, where he held various roles, including director of Worldwide Human Resources, and senior vice president of human resources, general counsel and secretary.
Ernest Rady 1937 Male 2006 Ernest S. Rady is principal shareholder, manager and consultant to a group of companies engaged in real estate management and development, property and casualty insurance, and investment management through American Assets, Inc. (president and founder) and Insurance Company of the West (chairman), Irvine, California.
Van Richey 1989 Male 2004 Van L. Richey is the president and chief executive officer of American Cast Iron Pipe Company, Birmingham, Alabama, a manufacturer of products for the waterworks, capital goods and energy industries. He has served in this position since 1989.
Ruth Shaw 1948 Female 1990 Ruth G. Shaw, retired, continues as executive advisor to the chairman and chief executive officer of Duke Energy Corporation, one of the largest electric power companies in the United States with headquarters in Charlotte, N.C..
Dona Young 1954 Female 2001 Dona Davis Young is chairman, chief executive officer and president of The Phoenix Companies, Inc., in Hartford, Connecticut, a provider of wealth management products and services to individuals and institutions, and its subsidiary, Phoenix Life Insurance Company.
Information retrieved on February 9, 2009 from http://www.wachovia.com/inside/page/0,,132_155,00.html
Table 2.
Management and Trusted Advisors
Name Born Gender Employee Other Title Background and Education Photo
Robert K. Steel 1951 Male President and CEO Under Secretary, Domestic Finance, U.S. Department of the Treasury (2006 - 2008) Senior Fellow, John F. Kennedy School of Government, Harvard University (2004 - 2006) Goldman Sachs Group, Inc. (1976 - 2004)
Education: Bachelor's in history and political science, Duke University Master's in business administration, University of Chicago
David Zwiener 1954 Male Chief Financial Officer Sr. Executive Vice President Managing Director and co-head of the Financial Institutions Group, The Carlyle Group The Hartford Financial Services Group (1995-2007)
Education:
B.A., Duke University M.B.A. in Finance & Marketing, Northwestern University No Photo available
David Carroll Not available Male Head of Capital Management Group Senior Executive Vice President Head of Corporate Services and Merger Integration Chief eCommerce and Technology Officer President, First Union-Florida, General Banking Group President, First Union-Georgia, General Banking Group Vice Chairman and General Banking Group Executive, First Union-Virginia.
Education: B.S. in business administration from University of North Carolina-Chapel Hill
Ranjana Clark Not available Female Chief Marketing Officer Sr. Executive Vice President
Steve Cummings Male Head, Corporate and Investment Banking Sr. Executive Vice President Co-head of Capital Markets Chairman and CEO of Bowles Hollowell Conner
Education:B.A. in Administrative Science, Colby College M.B.A., Columbia College
Reggie Davis Male Southeast Group Executive Wholesale Banking Executive Vice President Northern Banking Group Executive CEO of the Atlantic region President, Georgia and Georgia West regions Senior Vice President and Vice President, Commercial Real Estate Manager, Real Estate Loan Administration Real Estate account officer Corporate Real Estate analyst
Education: B.A. in insurance and actuarial science,
Jerry Enos Male Head of Operations and Technology Group Sr. Executive Vice President Head of Operations Division Head of Enterprise Support Services Regional leader of the Retail Banking, Sales and Service Departments, Greensboro and Charlotte, N.C.
Education: B.A. in Economics, Guilford College
Ben Jenkins Male President of the General Bank Vice Chairman President, First Union, Florida President, First Union, Virginia, Maryland, Washington, D.C. President, First Union, Georgia President, First Union, South Carolina City executive, Raleigh, N.C.
Education: B.S. in textile chemistry, North Carolina State University M.B.A., University of Alabama
David Julian Male Chief Auditor Executive Vice President Chief Operating Officer for Finance Corporate Controller Director of Corporate Accounting and Reporting
Education: Bachelor of Science, Northeastern University
Stan Kelly Male President of Wealth Management Senior Executive Vice President Head of Consumer Financial Services Regional Executive, Raleigh, N.C. Forsyth County Executive, Winston-Salem, N.C.
Education: B.A. in Business, North Carolina State University
Danny Ludeman Male President and CEO Executive Vice President Financial advisor, Board Member and Executive Committee Member - Wheat First Securities
Education: Virginia Tech; B.A. in Economics from Virginia Commonwealth University; M.B.A. from the College of William and Mary
Shannon McFayden Female Head of Human Resources and Corporate Relations Sr. Executive Vice President Director of Corporate and Community Affairs Director of Community Affairs Director of Human Resources Client Services, including relationship teams, compensation, diversity, training and organization development
Education: B.A. in Psychology, Davidson College
Kenneth Phelan Male Chief Ris Officer Executive Vice President Head of Risk Management Services, J.P. Morgan Chase Head of Risk Strategy Development and head of Market Risk, Bank One Head of Global Loan Portfolio Risk Management and Hedging, UBS Head of Capital Markets, Asset Backed Securities Group, Credit Suisse First Boston
Education: B.A. in Business Administration, Old Dominion University M.S. in Economics, Trinity University, Dublin, Ireland Juris Doctor, Villanova University School of Law
Jane Sherburne Female General Counsel Sr Executive Vice President General Counsel, Global Consumer Group, Citigroup Senior Deputy General Counsel, Citigroup Special Counsel to the President, The White House (Clinton Administration)
Education: B.A., University of Minnesota M.S.W., University of Minnesota J.D., Georgetown University Law Center No Photo available
Cece Stewart Sutton Female Head of Retail and Small Business Banking Executive Vice President Head of General Bank operations, South Carolina Area banking executive, Rock Hill, S.C. Training Director, Consumer Bank Manager, Consumer Bank, Greenville, S.C. Sales manager, Consumer Credit, Charlotte, N.C. Branch manager, Raleigh and Cary, N.C.
Education: B.A. in psychology, University of South Carolina; M.B.A., Winthrop University
Ben Williams Male Head of Global Capital Markets and Investment Banking Managing Director Head of Global Markets; Head of Fixed Income Division; Head of Real Estate-Financial Services Group Head of Wachovia's Real Estate Capital Markets group Various positions in Human Resources, Corporate Banking, Investment Banking and Commercial Real Estate
Education: B.A. in Economics, Davidson College; Masters in Science, Massachusetts Institute of Technology
Information retrieved on February 9, 2009 from http://www.wachovia.com/inside/page/0,,132_155,00.html Corporate governance and leadership style
Wachovia’s corporate governance consists of the many different aspects of their corporation.
Their corporate governance is comprised of relationship managers, business leaders, and their real estate and procurement staff. Their efforts are brought together to implement a service to our community including recycling and carpooling, Wachovia refers to this program as their Environmental Stewardship. The leadership of the stewardship is very hierarchical. Starting from the top of the firm with executive oversight by the operating committee; the operating committee is responsible for drafting and maintaining the environmental strategy. Then it gets passed down the environment Stewardship Working Group. This group includes the senior leaders from different service areas and offices within Wachovia. Their primary duty is to spearhead both the development and implementation of the environmental goals and initiatives. This group also meets regularly to discuss their strategies and game plans. Then the ball is passed on to the environmental affairs. The environmental affairs group consists of two people, Patrick Mumford and Daria Milburn. It is the duty of the environmental affairs group to manage the environmental strategy implemented by the environmental stewardships working group on a day-to-day basis.
Chronology timeline One of the major cause for scare to the financial crisis was the rapid manner of when it all occurred. It seemed that almost over night many of the financial giants were in grave danger of closing their doors fro good. Wachovia, the nation’s fourth largest financial servicing bank was no exception:
• June 2007 – Two Bear Sterns are required to dump assets due to major losses. This impacts many of the larger financial firms including JPMorgan, Chase, Merill Lynch, and
Citigroup
• October 15, 2007 – Citigroup announces third quarter losses of $6.5 billion
• January 15, 2008 – Citigroup announces fourth quarter loses of $18.1 billion
• April 4, 2008 – Wachovia reports it’s first quarter loss in seven years
• June 2008 – Ken Thompson, Wachovia CEO, is dismissed from his position
• July 2008 – Robert K. Steel joins Wachovia as CEO
• September 16, 2008 – AIG Corp, bails out Federal Reserve and enters into discussion of merger with Morgan Stanley and Wachovia
• September 29, 2008 Wachovia announces it’s decision to sell to Citigroup for $1/share
• October 3, 2008 – Wells Fargo announces its plan to purchase Wachovia for $7/share
• October 5, 2008 – Battle ensues between Citigroup and Wells Fargo over merger with Wachovia
• October 6, 2008 Citigroup and Wells Fargo’s battle comes to a legal standstill when Citigroup files a $60 billion lawsuit against both Wachovia and Wells Fargo for the interference of their takeover
• October 16, 2008 – Wachovia delays merger with Japanese brokerage units because of financial loss.
• October 22, 2008 – Wachovia reports $23.9 billion loss
• October 11, 2008 – The Fed approves Wells Fargo’s purchase of Wachovia
• November 11, 2008 Wells Fargo sells $11 billion in stock for Wachovia merger
• December 31, 2008 – The merger between Wells Fargo and Wachovia is finalized
Information retrieved on February 8, 2009 from http://edition.cnn.com/2008/BUSINESS/09/30/us.bailout.timeline/index.html
Legal Analysis As with any corporation Wachovia has found themselves to be involved in legal disputes in the past, present, and will surely in the future. It’s common for corporations to be involved in some type of legal dispute multiple times in a year. Many of these disputes often in up being resolved outside of court. Patricia McCoy, a professor of law & finance at the University of Conneticut stated that, “98% to 99% of civil suits are settled out of court”
While settlemtns are often the cause these suits are often extremely timely, expensive and be very detremntal to a company’s reputation. Legal ramifications can fall under three different categories; civil, criminal, and administrative. There are extreme differences with each of these and often times a corporation will find that they may be in court against civil or adminisrtaive ramifications; criminal charges be brought against a court are often rare as many corporations have strict legal teams to ensure that they are operating within the laws. The simpliest way to charcteize the different legal theories is to remember the civil liability is common law. A civil suit occurs when an individual sues the corporation hoping to gain a monetary value for be wronged in some way. The outcome of these suits are often a hefty cash settlement. Civil suits can be tried in front of a jury, in that case the jury must be convienced by 51% that the defendant is guilty also know as proof of preponderance. While Criminal suits are when the corporation is being charged for breaking a statute and will often result in jail time. In order for someone to be convicted in a crimimal suit the jury must be convinced of the defendance guily by 99% beyond a reasonable doubt. The Adminisrtaive liability involves government officials that have set rules and order to monetory and policy organizations. These groups include the SEC, FDA, & EEOC just to name a few. A corporation may find themselves in trouble when they have broken some clearly defined rule or law. Administrative trials may result in a license being revoked or some sort of suspension. Now that we have a clear understanding of the civil, criminal, and adminisrtaive laws let’s discuss how these laws pertain to Wachovia.
Civil Liability
Currently Wachovia is facing several civil suites but the perhaps the most popular suit is the RICO charges that they were facing. This is a perfect example of a suit that falls under both the criminal and civil categories. In 2007 Wachovia found itself in trouble when a Pennsylvania telemarketing firm preyed on several elderly people and gradually cleaned out their accounts by writing numerous fraudulent checks then processing the checks through an account at Wachovia. As a result Wachovia was sued by Langer & Grogan for acts of negligence. Langer & Grogan filed a class action suit against Wachovia for knowing that this was going on and not doing anything about it. Langer & Grogan also claimed that Wachovia had a part in it; thus filing a fraudulent suit against them for their participation in the RICO case. The following press release further illustrates the civil suit: PHILADELPHIA, April 12 /PRNewswire/ -- Langer & Grogan, P.C. announced today that it had filed a RICO class action alleging that Wachovia Bank, N.A. had conspired with a payment processor, Payment Processing Center ("PPC"), in a scheme that facilitated fraudulent telemarketing directed primarily at the elderly involving tens of millions of dollars. The suit was filed in Federal Court in Philadelphia. The complaint describes the use of "demand drafts" by deceptive telemarketers based on banking information they obtained over the phone from victims. The complaint alleges that PPC prepared the demand drafts and deposited them in a series of accounts opened at Wachovia. The complaint alleges that Wachovia, aware that demand drafts were commonly used by deceptive telemarketers, continued to open and to maintain the accounts, even though (1) the accounts had a return rate of approximately 60% of them total sums of the drafts deposited, and (2) even after a second Philadelphia bank had warned Wachovia that it was being flooded by unauthorized bank drafts originated by PPC and had solicited Wachovia's assistance "in trying to shut down the scam." The complaint states that, "Wachovia responded that 'overzealous' telemarketers were responsible for the problems with the PPC bank drafts, but nonetheless continued to accept such drafts from PPC." The complaint also alleges that other banks complained to Wachovia of PPC's activities. The complaint alleges that Wachovia had a special agreement with PPC which granted Wachovia expanded refund and charge back rights. The complaint alleges that Wachovia knew that the banking services it provided were an essential element in PPC's scheme.
Information retrieved on February 8, 2009 from http://www.prnewswire.com/cgi-bin/stories.pl?ACCT=109&STORY=/www/story/04-12-2007/0004564569&EDATE=
Further investigations later found that Wachovia employees did in fact know about these fraudulent transactions but continued to process the checks largely because of the fines that are charged on individuals when processing fraudulent claims would be a source of revenue for Wachovia. Some internal emails proved their involvement in the situation. One executive’s response when finding out these fraudulent charges was, “Yikes!!!!...DOUBLE YIKES!!! There is more, but nothing more that I want to put into a note. Information retrieved on February 8, 2009 from http://www.nakedcapitalism.com/2008/02/evidence-wachovia-knew-of-and-profited.html
A class action lawsuit was filed against Wachovia Bank for their participation and lack of immediate response to defuse these transactions. This case ended in a settlement, on October 12, 2008 Wachovia agreed to pay $200 million for turning a blind-eye and ignoring said transactions.
Information retrieved on February 8, 2008 from http://www.uslaw.com/library/Colorado/Wachovia_Telemarketing_Suit_Settled.php?item=266138 More recently Wachovia is currently facing a civil suit against Citigroup. In October 2008 Citigroup filed a $60 billion suit against Wachovia, Wells Fargo in proxy claiming that the December 31, 2008 merger completely underhanded their deal to acquire Wachovia. Citi’s allegations claim that Wells Fargo’s acquisition of Wachovia was a direct violation of the contract Wachovia previously had with Citi. Many professionals and experts in this area believe that Citi’s lawsuit of $60 billion is extremely unrealistic and Citi will most likely settle outside of court for far less than the $60, it’s doubtful they’ll even receive $1 billon. Or their case will be thrown out of court and Citi will end up with nothing. Either way if Citi loses this case it’s possible that their reputation will be tarnished and most likely stockholders will be displeased with the monetary costs for the law suit given Citi’s current financial situation they may find that this suit pull them out or dig them deeper into debt.
Information retrieved on February 8, 2008 from http://www.iddmagazine.com/news/188916-1.html?CMP=OTC-RSS
Given the information provided Wachovia could possibly file a countersuit on Citigroup if the judge decides to through the case out; it doesn’t seem a that Citi has much of a case and it’s possible they are suing to come out better than they would’ve been had the deal actually gone through. Their ability to actual acquire Wachovia is currently in question. Therefore, Wachovia could possibly file a civil suit against Wachovia for defaming their name and possibly their legal costs for dealing with the original suit. If Wachovia is able to win their suit then they could possibly come out on top but there’s no question as to when or if they’ll receive their money given Citi’s current financial situation.
Criminal Liability The RICO case discussed earlier is also a criminal case that Wachovia was facing. Wachovia is still currently facing criminal charges for this fraudulent activity which lead to more then $100 million in theft. Further investigation showed that more than 60% of the victims notified Wachovia of the misuse of their transactions and Wachovia still failed to take immediate actions and further investigate. The proof of the executives aiding and abetting in this criminal activity has done nothing but hurt any defense Wachovia may have had.
Information retrieved on February 8, 2009 from http://www.rumormillnews.com/cgi-bin/archive.cgi?noframes;read=106649
A more recenty case that Wachovia is currently involved in is on the plaintiff end. A Wachovia National Bank in Charlotte, North Carolina was robbed by a lone male. On September 4, 2008 an individual entered the bank and handed the teller a note that threatened the teller and also demanded cash. The teller cooperated with the robber and released an undisclosed amount of cash to the burglarer. He then exited the bank with harming anyone. Since then the individual has been captured and Wachovia is can file criminal charges against this individual. These charges can both burglary and assault. Also if Wachovia fails to do so it’s possible that the FBI can interfere and charge the individual with federal violations. Information retrieved on February 8, 2009 from http://www.crimeincharlotte.com/2008/09/wachovia-bank-robbed-on-south-blvd.html
Wachovia could possibly be involved in future criminal suits if another bank robbery were to occur. The security guard on duty for this robbery may now be a little more alert or even edgy about suspicious characters entering the building. If some time passes by and another individual that makes the security feel a little uncomfortable enters the building only this time he shoots first without asking questions but it comes to find out that this individual did not have the intent of robbing the bank than both the security guard and Wachovia could be facing some serious criminal charges. These charges could range from agrigated assault to attempted murder or murder if the individual does in fact die as a result.
Administrative Liability
In the situation regarding Wachovia’s involvement in the fraudulent transactions they may find themselves in administrative trouble with the Federal Deposit Insurance Corporation (FDIC). The FDIC is responsible for ensuring ethical and safe banking practices. It’s possible that Wachovia may be forced to restructure their current team and face multiple fines for failing to meet the assumed responsiblilites when they became aware of the unethical pratices. The federal government agencies recently got involved with the merger between Wachovia and Wells Fargo. As the there was dispute between Citigroup and Wells Fargo over which organization would be better equipped to acquire the Wachovia organization. The corporations went back and forth over weeks on this and it wasn’t until the federal government intervened on October 11, 2008, giving Wells Fargo the go ahead that the merger finally came to an end. While Citigroup is still actively and aggressively maintaing their civil group against both corporations. The feds have already approved the administrative aspects for Wells Fargo.
Another federal administration is the Security Exchange Commission (SEC). The SEC sets the rules and guidelines to maintain a fair order of practice within corporations. Due to recent economic crisis the SEC has been working even more diligently to protect investors and markets from unethical practices on behalf of the financial institutions. The SEC’s primary goal as of late has been to restore investors confidence in the financial realm by closely policing and monitoring some of the biggest players. If Wachovia could possibly be facing administrative ramifications from the SEC as well as the FDIC.
Information retrieved on February 8, 2009 from http://www.sec.gov/about/whatwedo.shtml
Ethical Analysis As with legal ramifications the importance of a corporation upholding their ethical resposiblities can be just as, if not more important. It is not uncommon for a company that chooses not to run an ethical practice will find itself on the fence with illegal practices, often resulting in criminal suits and possibly criminal suits as well.
Main Ethical Issues In 2008 the economy seemed to of come to a extreme means almost over night. Many major players in the financial industry, such as Fannie Mae, Morgan Stanley, and Wachovia, found themselves in desperate need of financial assistance. As a result, the American citizens began to panic. Pulling their money from stocks, bank accounts, and making incredibly drastic decisions overnight. Many of these decisions were pulling the economy under and proving to be less helpful so the government decided to intervene to help subdued some of the panic. This is where Wachovia’s ethical delimas began.
Wachovia is currently facing two major ethical issues both revolving around bailouts. While Wachoiva it’s self is looking for bailout and was in talks with several other insititions to merge before siding with Wells Fargo. Also despite Wachovia’s claim of a $23.9 billion loss and the report of their first quarterly loss in April 2008; they were able to provide an $8 million bailout to the NRCC - GOP. This bailout came after Wachovia has been denying credit to many of its customers, cutting back on loans, and also freezing assets of other customers. Many are claiming favoritism if Wachovia is able to pay $8 million to the GOP but unable to give a credit loan of $25,000 to John Doe. The moral delimia arises asking why does the GOP and/or Wachovia deserve a multimillion dollar bailout over the average American consumer and the Small Business Owner? Many are claiming that policital and favoritism are huge factors in Wachovia’s decision to bailout the NRCC
Information retreved on February 8, 2009 from http://southernstudies.org/2008/10/investigation-how-did-republicans-get-8.html
Ethical Models
The ethical model helps to illustrate the common types of models used when running an organization and can even be used on a case by case basises. Often times corporations will operate ion a certain manner and that manner will fall under a certain model. It’s not common that corporations will decided on the model to operate under as sceanriors may not always be that simple. There are three ethical models to describe the behavior or choices made under certain decisions. The utilitarian principle, which is also known as the cost/benefit model is best describe by appealing to the majority. Therefore, the greatest benefit to the largest amount of people is the best practice under this model. This model can be positive for those that fall under majority but for the minority it can be greatly unfortunate. As this model does not evaluate the lost to the minority in each scenario in relation to the gain for the majority, it just measures what the greastest outcome to the largest amount of people may be and goes by it. One could argue that bailout for Wachovia would be working under utlitariansim by giving them the bailout. It seems that bailing out Wachovia could benefit not only the corporation but the economy as well. If Wachovia did not receive the bailout then its consumers would have to go else where for their financial needs. Most likely losing the fourth largest financial servicing company in the United States would only make it harder to get a loan and cause the unemployment rate to rise even higher. Another ethical model is the rights orientation model. This model was developed by Immanuel Kant and is designed primarily by fairness. Therefore, Kant’s theory was that everyone has a right to be treated equally and not one human being should be able to violated another’s right to equally. Therefore, if a right is in direct violation of another persons basic rights then another outcome should be found. This model is perhaps the largest agruement against providing Wachovia and other financial insittions with the bailout. Is it Wachovia’s right to receive millions in bailout money over the taxpayers right to vote on how the taxpayers money should be spent? Many argue that the taxpayer has the right to receiving money individually to themselves over a major corporation being ran by wealthy executives who aren’t accustomed to commercial flights. The third fand final model is egoism. Egoism is arguably the most popular model amongst corporate executives. This theory is based on the fact that the most important player in the decision making process is the decision maker. Therefore, the finally outcome should be weighed on how it is most beneifical for the decision maker and completely negligent to consider anyone else’s rights or the impact it may cause on either the majority or minority. This model can be extremely dangerious because it’s very subjective and the outcome can and will most likely change on a person to person basis. It’s possible that many feel as thought Wachovia is acting on the egoism model. Deciding that the best outcome for Wachovia is to receive the congressional bailout; without stronglgy considering how all of the economy may benefit if the executives used their own money to bail temselves out and would’ve allowed the congressional bailout to go public or governmental organization more in need of funds.
Kohlberg Analysis Lawrence Kohlberg is a psychologist that dedicated much of his career disproving the theory that we are maintain our adolescent views on morality. Kohlberg’s theory was that as we grow in age or depth in problem solving matures and grows with us much like our physical and mental attributes. Kohlberg found that this process is broken up into three main stages. Preconventional Stage; the preconventional stages the are the most fundamental states. They are broken up into two stages, Punishment and obedience orientation and instrumental and relative orientation. In this stage Kohlberg discusses how children are able to decipher the difference between right and wrong and good and bad. Which is most often taught by self how it pertains to ones self. If you do something bad or wrong then you’ll receive a punishment and adversely right or good behavior is rewarded. The next stage is the conventional stage. In the conventional stage the two sub stages are interpersonal concordance orientation and law and order. This stage illustrates the importance of social loyalty and behavior. At this stage we mature the fundamental knowledge of right and wrong to what’s acceptable to our social group. One extreme example may be that it’s wrong to steal but if a boy is stealing bread to feed his starving family in his conventional stage agrees with that mentality of thinking. At this stage we are capable of taking a more in-depth of right and wrong not always being so black and right however we’re incapable of understanding other view points that aren’t relating to our own. Kohlberg’s final stage is postconventional, autonomous, or principled stages. This stage is the most mature and most advanced level. The person is now able to understand the difference between right and wrong and apply that theory to how it will apply to all individuals being affecting whether it pars with that one individuals point of view or not. This stage is also broken into two different stages as well; social contract orientation and universl ethical principles orientation. It is Kohlberg’s theory that once out of adolosence most mature adults are at the third and final stage. Being able to problem solve and consider all parties involved when facing an ethical dilemma otherwise that the party is capable of working under the rights orientation model. While the decision process may be there, the final outcome may not always reflect that.
Critical Analysis
How the Situation Could Have Been Avoided (From a Management Perspective) What You Learned from the Research Paper and How It Would Apply To Your Personal Leadership Style Research Wachovia has really taught me a lot about mainting scruples and morals when working a leadership position. Some of Wachovia’s major legal and ethical dilimenas could’ve been avoided had they decided not to focus on the bottom line or the monetary amount that they may have received for acting unethically. Also it seems that these unethical acts costs them a lot more than they brought in. One example is the $200 million that they lost to the civil suit alone in the RICO case. When a corporation grows to the size the Wachovia has become it seems almost impossible not to have a heiracial leadership within the firm; however, there must be actions holding people accountable at each structure within the firm. Therefore, people will focus on covering themselves and ensuring that every transaction they’re involve in is covered as well. I feel that people must be able to take ownership for the task that they’re assigned to and ensure that they are fulfilling both the legal and ethical roles in their position the say way the would had it been their very first day at work.
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